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February 15, 2012

 

DiNapoli: Village Officials Used LDC to Avoid State Procurement Laws

Cornwall-on-Hudson Spent $929,000 for Unusable Building

The village of Cornwall-on-Hudson skirted state procurement laws by using the Cornwall-on-Hudson Local Development Corporation (COHLDC) to construct a new public works garage that was built on unsuitable land, failed to meet building codes and cost $929,000, according to an audit released today by New York State Comptroller Thomas P. DiNapoli.

"Taxpayers can't afford such careless spending," DiNapoli said. "There was no legitimate justification for using an LDC to construct this building, and the result is a mess for taxpayers. This is another inappropriate use of an LDC by local government that highlights the need for my proposed reforms."

Cornwall-on-Hudson attempted to dissolve the COHLDC in 2007, but failed to do so because it filed inaccurate paperwork with the New York State Department of State, the audit found. Local development corporations, or LDCs, are private, not-for-profit corporations often created by a local government for economic development such as stimulating economic growth, or other public purposes. LDCs are generally not subject to the same requirements and laws as local governments, such as public procurement laws or the debt limits established for municipalities.

The Comptroller's office has reviewed several examples of local governments statewide improperly using LDCs to avoid state laws or bypass oversight. The Comptroller recently issued an audit of the town of Ramapo's use of an LDC to build a local baseball stadium that could leave taxpayers liable for up to $60 million. DiNapoli has proposed legislation that would reform how LDCs can be used and give his office audit authority over certain LDCs.

DiNapoli's auditors concluded that the village opted to use the COHLDC for the garage construction to avoid complying with New York's Wicks Law and other competitive bidding statutes.

The audit found that village board members authorized a $960,000 serial bond to finance the new building and transferred the proceeds to COHLDC, even though the contractor agreed to construct the building for just $722,000. The board allowed the garage to be built inappropriately on the site of a former sewage treatment plant. Moreover, responding to serious concerns raised by the Department of State over violations of the State Uniform Fire Protection and Building Code, the village's public works department vacated the building and has paid nearly $12,000 since to work out of a rented trailer.

At present, the building is sitting unused.

DiNapoli's auditors also determined that village officials failed to adopt realistic budgets, creating cash flow problems that required officials to issue $990,000 in revenue anticipation notes and incur more than $245,000 in interest since the 2000-2001 fiscal year.

DiNapoli recommended that the Village Board:

  • Strictly adhere to state law when financing and bidding capital projects;
  • Enter into written contracts and exercise due diligence with those doing business with the village;
  • Have an engineer review the building's apparent deficiencies and determine if it is in the best interests of taxpayers to bring the structure up to code; and
  • Adopt realistic and balanced budgets and review all revenue anticipation notes to take action to satisfy the outstanding balances.

Village officials agreed with most of the Comptroller's findings and stated that they are currently making efforts to bring the building up to code and are exploring possible legal action to recover costs.

A copy of the complete audit can be found at: http://www.osc.state.ny.us/localgov/audits/villages/2012/cornwallonhudson.pdf

A copy of DiNapoli's LDC report and proposed legislative reforms can be found at: http://www.osc.state.ny.us/press/releases/apr11/041411.htm

 

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